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Wednesday, October 29, 2014

There's been nothing like the death of Gough Whitlam to make me feel
old. Was I on the job in the early 1970s watching the amazing scenes and
taking note? Sure. Where was I when the Great Man was dismissed? In the
building, where else? Later that night I was in a Canberra restaurant
where Tom Uren wept from table to table.

But there's nothing to make
me feel more disillusioned and cynical than the latest prime minister
popping up to tell us his grand plans to revitalise federal-state
relations. Really? That's what they all try. What makes Tony Abbott
likely to succeed where his many predecessors - going right back to
Whitlam - failed so dismally?

Since Abbott's plan raises the
possibility of tax reforms - "including changes to the indirect tax
base" - he'll be lucky if the "mature debate" and "rational discussion
about who does what" he seeks doesn't erupt immediately into an
Abbott-strength scare campaign about increasing the goods and services
tax, led by a Labor Party with a long record of hypocrisy on the topic
and a thirst for revenge.

In such a climate, the various premiers
facing re-election in coming months are likely to swear total opposition
to any change in the GST. These days our politicians excel in the
Mexican standoff.

Whitlam was seen as the great centraliser,
drawing furious attack from the premiers and a Coalition sworn to uphold
"states' rights". But subsequent thought has been kind to his notion
that the ideal model would be a strong central government dealing with
many regional governments, closer to the ground than the present state
governments and given flexibility to modify national rules to suit local
conditions.

Forty years later it's obvious that ain't going to
happen. However anachronistic, the state governments - within their own
borders, just as centralist as any federal government - won't ever give
up their rights and privileges.

Malcolm Fraser's "new federalism"
involved making the states more self-sufficient by giving each the right
to impose their own surcharge or discount on federal income tax. The
premiers, always full of complaints about the inadequate money they're
given, weren't the least bit attracted to new taxing powers.

The
Hawke-Keating government continued the process of ever-increasing
federal involvement in areas of state responsibility. It pioneered the
practice of bribing the premiers to undertake desired reforms.

John
Howard did little to conceal his centralist tendencies, dropping any
pretence of favouring states' rights. More and more "specific-purpose
payments" to the states came with detailed rules about how the money was
to be spent.

Part of his reason for introducing a GST was the
need to replace the revenue from various state taxes the High Court had
ruled unconstitutional. His decision to give all the proceeds from the
new tax to the states (and cut back other grants to fit) was an inspired
move to neutralise the premiers' opposition to it.

His greatest
act of centralisation came with Work Choices, which ended a century of
(highly inefficient) shared federal-state responsibility for industrial
relations.

Kevin Rudd tried to improve federal-state relations by
greatly rationalising the thousands of conditions attached to federal
grants. His efforts to reach federal-state agreement on removing
regulatory inconsistencies ground to a halt as states dragged their
heels. He lacked the resolve to carry out his threat of a full federal
takeover of state public hospitals.

Now Abbott says he wants to
reverse the creeping centralisation, reaching a rational division of
roles that would make each level of government "sovereign in its own
sphere". As part of this, he'd support a joint plan to increase
collections from the (withering) GST and give all the proceeds to the
states, taking it to the next federal election for voters' approval.

Trouble
is, there's no suggestion this would leave the premiers with more money
overall and, if this year's budget is any indication, no guarantee the
feds wouldn't try to solve their own budget problems at the states'
expense.

It's unlikely federal and state governments could ever
reach a lasting division of responsibilities that would end the
duplication, cost-shifting and blame-shifting. That's for a host of
reasons.

Most of the economic arguments favour nationally uniform
regulations. If the feds are to retain ultimate responsibility for the
health of the economy, they need the ability to influence the building
blocks of economic performance, such as schools and TAFE.

Federal
Medicare and pharmaceutical benefits, and state public hospitals, are
each parts of the same system, which must be co-ordinated.

The
underlying problem of "vertical fiscal imbalance" - most tax revenue
(including the GST) is raised by the feds, whereas most government
spending is done by the states - is intractable, the product of history
and constitutional law.

When the feds cop most of the opprobrium
for extracting taxation, it's only human for them to want a say in how
it's spent.

But when the premiers get used to spending lots of money
without having to raise it, to demanding more from the miserly feds on
behalf of their deserving constituents and to blaming any and all
problems on those terrible incompetents in Canberra, it's only human for
them to want to continue evading responsibility.

The premiers'
"revealed preference", as economists say, is that they prefer the
federal system as it is, including their right to complain bitterly
about it and demand another handout.